I’ve blogged before about whether walking away from your mortgage is okay. It’s clearly an incredibly subjective question — what is one person’s smart move is another’s moral outrage. The smart move/moral outrage debate has been raging in the blogosphere so it’s been on my mind lately. It’s the first thing I thought about when I came across this old New York Times article, from last December:
A Holdout Against Developers Leaves a Legacy
Photo: New York Times
The article tells the story of this little old lady, Edith Macefield, who was 86 when she died last June. When developers wanted to buy her home and property to develop it into an LA Fitness and Trader Joe’s, she said “No.” They offered her $1 million for the tiny, 108-year-old house. She still said “No.”
Some people suggest that she was making a statement — the last bastion against steel-and-concrete development in the old fishing village of Ballard, near Seattle. Others say she just wanted to live in her house. Either way, what a contrast she is to those who bought high in 2005 and are now paying mortgages on homes worth 20, 30, 40 or 50% less than what they paid and say, “Walking away sure sounds enticing.”
Financially, maybe walking away makes sense. I don’t really know; that’s not my area of expertise. I do know it’ll take a huge bite out of your credit score — making it very hard if not impossible to get credit at a good rate for at least seven years.
Certainly there are families who have been hit by a job loss or a medical emergency, who simply can’t afford to pay once-affordable mortgages. There are families who simply messed up — who went willingly into mortgages they couldn’t really afford. There are families who were duped by unscrupulous lenders into teaser mortgages they can no longer afford. Sometimes, in other words, you simply can’t afford your home anymore. In that case, I guess, you have to let it go.
But what about circumstances where a family really can afford the mortgage but hates paying for an asset that has lost so much of its value? A family who bought at the peak with no money down in an area where price declines have been really steep might be paying double what they would pay to rent the same house. Does it make sense to walk away then?
Maybe we should ask, “What would Edith Macefield do?”
What do you think? Would you walk away from your mortgage? What’s your opinion on people who do? Click on the “Comments” link below and let me know!
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